Spain Faces Run On Banks

In another sign that the financial crisis in Europe is worsening, Bankia, Spain’s fourth biggest bank, which was formed in 2010 through a merger of seven regional savings institutions, is suffering from a recent run on the bank of l billion euros. This news, revealed in the El Mundo newspaper, triggered shares in the bank dropping yesterday by 27 percent.  Spain’s IBEX index fell nearly to its lowest level since mid-2003. In addition, the pan-European FTSE 300 index dropped to 984.22, the lowest since January.   

What is happening in Spain only adds to the fears sweeping the European content following the disaster in Greece. The European Central Bank has stopped providing liquidity to some Greek banks because they have not been recapitalized.  Since the Greeks have blindly rejected austerity measures which the European Union and the International Monetary Fund imposed and elected the Radical Left party leader Alexis Tsipras and former Prime Minister George Papandreou, there is expectation that Greece will flee the Eurozone. Investors are now worried that Greece leaving the alliance will trigger the same action from Spain and Italy, and they are reluctant to put their money in those countries. Spain especially is looking like a bad investment; it slipped back into recession during the first quarter, and the country’s medium-term borrowing costs rose sharply during a bond auction.    

Royal London Asset Management’s European equities fund manager Neil Wilkinson, who manages around 425 million euros worth of assets, said his portfolio was 70 per cent invested in France, Germany, the Netherlands and Switzerland, but only a small amount in Italy and Spain.